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Supreme Court confirms existing case law - payments in cash for unused leave due to the bankruptcy of an employer are still considered to be estate debts
BlogStibbe Blog

On 17 November 2017, the Supreme Court confirmed the existing case law that if employees are entitled to payment in cash for unused leave due to the bankruptcy of their employer, such claims are considered to be estate debts, regardless of when the entitlement to such leave accrued (ECLI:NL:HR:2017:2907). This ruling was given as a response to a request for a preliminary ruling by the Leiden Subdistrict Court.

LISV/Wilderink q.q.

In 1999, the Supreme Court had to rule on a case similar to the one discussed in this blog (ECLI:NL:HR:1999:AA3819, LISV/Wilderink q.q.). In that ruling, the Supreme Court formulated the following principles:

The entitlement to payment in cash for unused leave qualifies as wages within the meaning of sections 7:616 and 7:625 of the Dutch Civil Code (DCC);

For the purpose of section 40 of the Dutch Bankruptcy Act ( DBA), the term wages has the same meaning as the term used in the DCC;

According to section 40 DBA, unpaid wages of employees accruing from the date of bankruptcy onwards are estate debts;

Entitlement to cash payment for unused leave arises when the employment ends. In the event of bankruptcy, the termination of employment takes place after the liquidation order, and therefore the entitlement to cash payment for unused leave is an estate debt, regardless of when the entitlement to such leave accrued.

Koot Beheer/Tideman q.q.

The first question in the Leiden Subdistrict Court’s request for a preliminary ruling was whether the above-mentioned principles are still in force. The reason for this question stems from the Supreme Court’s landmark ruling with regard to estate debts (Supreme Court 19 April 2013, ECLI:NL:HR:2013:BY6108, Koot Beheer/Tideman q.q.), which identified only three categories of estate debts:

pursuant to the law;

because the legal relationship from which the debt arises has been entered into by the bankruptcy trustee in his capacity as bankruptcy trustee; and

the bankruptcy trustee acts in violation of an obligation connected with his capacity as bankruptcy trustee and the debt is a consequence thereof.

In that ruling the Supreme Court replaced the then-existing criterion that a debt qualifies as an estate debt if it occurred through the actions of the bankruptcy trustee (toedoencriterium), with the above-mentioned categories 2 and 3.

Present ruling: UWV/Aukema q.q.

In its ruling of 17 November 2017, the Supreme Court held that it has not changed the principles formulated in the LISV/Wilderink q.q.-ruling, because the debt is a category 1 estate debt (see section 3 above), which was not changed by the Koot Beheer/Tideman q.q.-ruling. Therefore, the Supreme Court held that there were no grounds to reconsider the above-mentioned principles.

In conclusion, if employees are entitled to payment in cash for unused leave due to the termination of their employment as a consequence of the bankruptcy of their employer, such claims are considered to be estate debts, regardless of when the entitlement to such leave accrued.

Furthermore, in its request for a preliminary ruling, the Leiden Subdistrict Court asked whether the bankruptcy trustee can oblige the employees of the bankrupt company to take leave in order to decrease the amount of estate debts. The Supreme Court ruled that leave is usually determined in accordance with the employee’s wishes, unless the employer has good reasons to deny a request for leave. Consequently, the bankruptcy trustee cannot oblige employees to take leave instead of claiming payment in cash, since such conduct would be incompatible with the legal system.